Austria’s growth performance hinges inter alia on the quality of its education system. While the latter has long equipped the Austrian labour force with good vocational skills, it now faces major challenges. It has to provide youth with new, higher and more generic skills called for by technological change, international competition, and aspirations for a more equitable distribution of human capital. The education sector faces difficulties in responding to these demands. The new government has an ambitious education reform agenda. This chapter suggests that the authorities should emphasise: i) increasing the participation of all children in pre-school education from age three onwards, with a particular focus on pupils with weak socioeconomic and immigration backgrounds; ii) overcoming the excessively early streaming of students in compulsory education, by encouraging the development of the recently introduced new secondary schools (Neue Mittelschule); iii) rationalising the present school infrastructure, class sizes and teaching personnel, and re-investing the freed resources into improving teaching quality; and iv) allowing universities to select their students and charge tuition fees, while avoiding socioeconomic segregation with the help of a comprehensive grant and income-contingent loan system.